Home Insurance For First Time Buyers: What You Need to Know (2024)

First-Time Buyer Home Insurance Explained

Are you looking for home insurance for your first home purchase? For first-time home buyers, navigating the homeowner’s insurance landscape can feel overwhelming, but protecting your new investment is crucial.

As a first-time home buyer, you will be presented with the option of buying home insurance to protect your investment.

If you are taking out a mortgage to get the home, you will probably be required to buy home insurance as part of your loan agreement.

Like most things when buying your home, insurance will be another decision where you can choose from various options.

To navigate this decision, having some basic information on what home insurance covers, how much it costs, and how to choose an insurer for yourself can be helpful.

From experience as a real estate agent for the past three decades and owning properties in multiple states, understanding property insurance is vital.

It behooves those who are buying a house for the first time to understand how insurance works.

We will examine some of the best home insurance tips for first-time homebuyers and learn how to save money on home insurance! There are many savings tips you will find helpful.

Is Home Insurance Necessary?

If you buy a home with cash, you are not required to have home insurance. However, there are certainly advantages to purchasing insurance anyway.

Your house is likely your most significant investment, so having some protection for that investment can be beneficial.

If you are getting a loan for the home, the lender will require you to get insurance in most cases.

The lender will want to protect its investment, and insurance is one of the easiest ways.

The home insurance policy is an expense you must calculate into your budget. You can expect your lender will require you to get insurance before you take the loan.

Like title insurance, it is something beyond wise to have. As Murphy’s Law goes, as soon as you don’t have it, a problem will surface. Of course, without insurance, this kind of problem could take tens of thousands out of your pocket or even more!

Shop For Homeowner’s Insurance Early

One of the crucial steps for buying a house is getting your insurance squared away.

I recommend starting shopping for homeowners insurance early, ideally 30 days before your home purchase closing. Compare quotes from multiple insurers to find the best rate and coverage.

Consider factors such as the age of the home, its building materials, and safety features. Don’t hesitate to ask for recommendations from your real estate agent or to consult online reviews and ratings.

What Home Insurance Companies Should a First-Time Buyer Research?

When choosing an insurance provider, consider companies that offer competitive rates, excellent customer service, and financial stability. Here are several of the top home insurance carriers worth checking out. These are all excellent choices for first-time buyers.

• Amica: Highly regarded for customer satisfaction and broad coverage options. Amica consistently scores high in customer satisfaction surveys and offers a direct-buy approach to insurance nationwide.​
• State Farm: They are the largest home insurance company in the U.S. It is well-known for its financial stability and extensive network. State Farm is praised for its customer service and comprehensive coverage options.​
• Allstate: Offers a wide variety of discounts and coverage options, making it a strong choice for homeowners looking for flexible insurance solutions. Allstate is noted for its competitive rates and robust coverage options.
• American Family: Recognized for its trustworthiness and customer service, American Family provides a solid range of discounts and coverage options.
• Nationwide: Offers a variety of coverage options and discounts, especially for bundling home and auto insurance. Nationwide is appreciated for its comprehensive coverage options and significant bundling discounts.​
• USAA: Best for military families, offering extensive coverage and discounts for military members and their families. USAA is highly rated for customer and claims satisfaction​
• Travelers: Known for offering coverage for homeowners with poor credit and a wide array of optional coverages. Travelers is a solid choice for those looking for customizable insurance policies.
• Hippo: Best for smart homes, offering modern coverage options for tech-savvy homeowners and those with home offices. Hippo is highlighted for its innovative approach to home insurance and smart home discounts.
• Neptune: Recognized as the best private flood insurance company. They offer comprehensive flood insurance with high coverage limits. Neptune is ideal for homeowners in flood-prone areas looking for extensive flood coverage.

These companies were selected based on customer satisfaction ratings, coverage options, financial strength, and specific features that cater to different homeowner needs.

How Do You Find a Good Insurance Provider?

Besides speaking to one of the top insurance providers mentioned, I recommend shopping around. Talk to people you know and trust, like friends, family, neighbors, your Realtor, etc.

Do not go with the first policy presented to you. Compare different options and tweak your requirements to ensure you get the coverage you need at a price you can be happy with.

If you are a first-time buyer who has moved into a new area, see if you can find a provider to insure your home and car. The insurance savings of doing both together could be worth it!

Home insurance is something all buyers should have a general understanding of, especially first-timers.

What Does Home Insurance Cover?

Most home insurance policies will cover both the home and the contents inside of it, as well as structures on your property, like a garage or shed. It will also usually cover living expenses should the home be uninhabitable.

All home buyers should understand the significant types of insurance. Getting the necessary home insurance for first-time buyers is a must!

There are several basic categories for what is covered, including:

Liability Insurance Coverage

Liability coverage helps pay for injuries on your property, like if a neighbor slips and falls on your driveway while helping you shovel snow or a visitor falls on a slippery floor inside the house.

It should help cover the costs of medical care and funeral expenses, if there are any. It should also cover your legal fees if someone sues you.

Keep in mind we all live in a litigious society today. If someone thinks they can get money from you, they will file a claim.

Liability insurance is critical homeowner insurance for any policy under consideration.

Structure Insurance Coverage

There are so many ways that your home can become damaged—storms, wind, fire, etc. Your insurance should cover the cost of rebuilding the home after such damage as long as the policy covers the source of the damage.

You want to purchase insurance to cover the cost of rebuilding your home.

One of the common questions people have is whether their insurance covers winter storm damage. When you buy your first home, carefully review your policy to know exactly what you are signing up for.

In many cold-weather climates over recent years, there have been many claims due to ice dam damage. As a new homeowner, ice dams are something you will want to know how to prevent.

Contents Insurance Coverage

Usually, if your home structure is damaged, at least some things inside the home are also damaged. Contents coverage will most likely range from 50 to 70 percent of your coverage for the structure.

You may need additional insurance to cover their replacement cost if you have precious possessions.

Allstate has some helpful information regarding getting home insurance, especially if you are purchasing your first home. It is essential to understand precisely what contents insurance suits your property.

Coverage For Living Expenses

If your home is unlivable, you must pay for food and lodging while it is repaired. Living expenses will cover these costs. The amount of coverage will vary, so make sure you purchase enough coverage to take care of yourself and all your family members if necessary.

Insurance Coverage For Additional Structures

If you have additional structures on your property, like a workshop, garage, or shed, you will need coverage for those structures.

Some policies will automatically cover basic structures like a shed, but if you have any specialized structures that are especially valuable, make sure to verify that they will be covered.

Understanding The Exclusions is Essential

Depending on your home insurance shopping location, there will be specific exclusions on a standard policy. These may encompass earthquakes, landslides, mudflows, and flooding.

If you face a potential risk not covered by your policy, inquire with your home insurance agent or company about the availability of additional protection for excluded incidents.

Know Your Deductibles

When purchasing home insurance for the first time, it is crucial to consider your homeowner’s insurance deductible for property damage. The deductible represents the portion of the claim for which you are accountable. The deductible amount should align with your budget.

A higher deductible generally lowers your insurance premium, but you’ll pay more out-of-pocket if you file a claim.

In contrast to car insurance, the deductible for your home insurance may not always be a fixed dollar amount. It might be a percentage of your policy’s dwelling coverage.

Your policy might also feature a split deductible, where a set dollar amount applies to most claims. However, a rate may be applicable for wind damage or other covered perils.

A higher deductible generally lowers your insurance premium, but you’ll pay more out-of-pocket if you file a claim. I suggest that first-time buyers bundle their home and auto insurance.

I advise all my clients that they could save up to 30 percent using one insurance provider. Shop around to get the best deal.

What Kind of Events Does Home Insurance Cover?

One of the questions that many first-time homebuyers will ask is, “What does home insurance cover”?

The events that might damage your home or its contents are perils. Covered perils usually include the most common events in your area, including fire, lightning, vandalism, theft, explosions, hail, etc.

You will also be covered if your pipes burst and water damage occurs. Some perils require additional coverage, though, like floods.

Flood Insurance Isn’t Part of Standard Coverage

Do not assume your home insurance will protect you from flooding unless you get specific flood insurance. See what you need to know about flood insurance here.

One of the biggest takeaways is just how expensive flood insurance can be. Make sure you do your homework whenever buying a home in a floodplain. This is especially important if you are a first-time buyer looking for a sound budget.

Flood insurance costs could change at the drop of a hat!

How Much Insurance Do You Need?

The amount of insurance you buy should be based on your specific circ*mstances. For instance, your coverage for the contents of your home should be calculated by taking stock of all the things that would have to be replaced by your coverage.

It would help to list everything in your home and its estimated replacement cost. Once you have an inventory, you can review it with your insurance provider and find the right policy.

The same is true for your structure coverage. You want enough to help you rebuild the entire home. The amount of liability coverage you have is usually based on standards for your state.

When insuring your home, covering the land on which it is built is unnecessary.

In other words, if your home burns to the ground, you don’t need to insure the house’s value. It would be best to deduct the value of the land on which your home resides when figuring out your insurance coverage.

Some insurance companies may try to get cute and suggest over-insuring your property. Please don’t fall for it! Home insurance for first-time buyers should not be any more complicated than any other policy.

How Much Does Home Insurance Cost?

The cost of home insurance varies considerably depending on the coverage you need.

The price of home insurance for a million-dollar home will be much more than the coverage for a $250,000 house.

The value of what you have inside your home can also significantly change the cost of your insurance.

There are some factors that every insurer will take into account when recommending your policy, including:

• Location of the home
• Your credit score. When buying a house, a good credit score helps with everything.
• Both your claims history and the claims history for your area
• How old your home is
• How close you are to a fire department
• Whether there is a fire hydrant nearby
• Whether you have pets

What is The Average Cost of Home Insurance?

The average cost of homeowners insurance varies significantly across different states and is influenced by various factors.

Two primary conditions influencing cost include dwelling coverage amounts and the property’s location.

According to NerdWallet’s analysis, the national average cost of homeowners insurance is approximately $1,820 per year or about $152 per month.

This estimate is based on a policy for a 40-year-old homeowner with good credit, $300,000 of dwelling coverage, $300,000 of liability coverage, and a $1,000 deductible.Insurance.com’s research, which involved collecting home insurance rates from major insurers across nearly all ZIP codes in the country for various coverage levels, highlights that the average cost for homeowners insurance can range significantly based on the dwelling coverage amount.

For example, for a dwelling coverage of $200,000, the average rate is about $2,233. A policy with $500,000 in dwelling coverage averages around $3,594​

Policygenius provides further insight into the cost by dwelling coverage amount, indicating that for a $200,000 dwelling, the yearly average cost is about $1,298, whereas a dwelling coverage of $500,000 could lead to an average annual cost of $2,724​

The state where you live plays a significant role in determining your homeowner’s insurance rate. For instance, Oklahoma, Kansas, Nebraska, Arkansas, and Texas are among the states with the highest rates, primarily due to being prone to severe storms, including tornadoes and hail.

In Florida, where I own a second home, home insurance costs have skyrocketed. The increases don’t come at an excellent time for first-time buyers, as mortgage interest rates have doubled from their lows.

On the other hand, states like Hawaii, California, Washington D.C., Vermont, and New Hampshire have some of the lowest rates. Notably, standard home insurance policies in Hawaii typically exclude hurricane damage, which significantly lowers the average rate in the state.​

Given this information, when considering homeowners insurance, it’s crucial to compare rates from different insurers and consider how factors such as location, dwelling coverage amount, and the specific terms of your policy (e.g., deductibles and liability coverage limits) might affect your premium.

How Do You Save Money On Home Insurance?

Although there are many factors that you cannot control when it comes to home insurance costs, there are a few things that you can do to help save money. This includes:

• Upping your credit score – If you can improve your credit score, you should get a better price on your insurance.
• Looking for discounts – Some insurance companies offer discounts, like having multiple policies with the same provider. This is mentioned above in the article about home insurance savings tips.
• Get a bigger deductible – If you are willing to have a higher deductible, you can get a lower rate. Ensure you keep enough money in an emergency fund to meet that deductible.

These first-time buyer home insurance tips will help you save money in the long run.

How Does Your Insurance Payments Work With Escrow and Mortgage Provider?

The majority of initial home buyers often have their home insurance in escrow. Escrow accounts hold the funds allocated for your home insurance and property taxes.

Each month, you make a specific payment (usually a few hundred dollars) in addition to your regular mortgage payment. These additional funds are held in an escrow account by your lender/mortgage servicer.

It is important to note that when your home insurance and property taxes are due, the lender pays these fees from the escrow account on your behalf. Escrow accounts are often recommended to ensure you stay updated with your home insurance and property tax assessment.

I have always preferred to pay these payments myself. If you’re like me, you can ask your lender to pay these expenses rather than escrow them.

Some homeowners use escrow to pay for insurance and taxes in monthly installments rather than annually or biannually.

Conclusion

Hopefully, you have gotten something out of this guide to home insurance for first-time buyers. Homeowners insurance is nothing to fool around with. It is an essential part of homeownership that should never be discounted. You’ll understand this the first time you need to file a claim.

Additional Helpful First-Time Home Buyer Articles

• What to know about student loans as a first-time buyer. See what you should understand about student loans before buying a house.
• Increase a credit score before buying a home – First-time home buyers should focus on increasing their credit score.
• When buying a first home, know the hidden expenses many folks forget.
• What not to do when buying a house – learn some things you should never do before purchasing a home.

Use these additional first-time home buyer resources to make intelligent decisions when purchasing your first home.

About the Author: The above Real Estate information on first-time buyer home insurance was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.

Learn moreabout Bill Gassettand the publications he has been featured in. Bill can be reached via email atbillgassett@remaxexec.comor by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.

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